Why is Title Insurance Important?

Be Certain That You Are Protected.

Homeownership. It's is the single largest financial decision you'll likely ever make. It's synonymous with independence and long-term stability for your family and finances. Yet, ownership rights can be challenged and even lost. Whether it's fraud, forgery, or even just an honest mistake, there are multiple ways the dreams of homeownership can become a nightmare. An integral part of the home-buying process is assessing and protecting against risk – both of which are addressed by securing title insurance.

Without the protection of title insurance, your record of ownership – the title to your property – can fall victim to a variety of risks, or title defects, that can cost thousands of dollars in legal fees to resolve and possibly threaten your ownership rights.

The Power of Title Insurance

Protects Icon

Protects your

Legal Icon

Covers costly legal fees for covered matters

Heirs Icon

Provides protection as long as you or your heirs own the property

For most families, paying thousands of dollars to lawyers to protect their ownership rights would be financially challenging and, for some, impossible. A relatively small investment in title insurance at the time you buy your property provides protection from covered title issues for as long as you own your home. What is more, title insurance coverage includes a "duty to defend," meaning the title insurer will hire lawyers and pay defense costs for the homeowner for matters covered by the policy.

A duty to defend

Title Insurance coverage includes special protection that will hire lawyers and pay the defense costs to protect homeowners from all matters covered by the policy. This can save you thousands of dollars.

Origin of Title Insurance:

Meeting the Need for Stronger
Ownership Rights Protection

Prior to the institution of title insurance, most people relied on an attorney's opinion letter to support a clean transfer of ownership when buying property. These letters would state that, in the attorney's opinion, a particular piece of real estate was free of competing legal claims. However, attorney opinion letters included no duty to defend the parties relying on the opinion, leaving lenders and property owners with considerable risks to their collateral and property ownership rights.

Title insurance gained favor among property owners as a solution for protecting ownership rights because of its greater protections and efficiency, rapidly becoming a foundational component to real estate transactions of all sizes. Today, lenders and home buyers rely on the reduced risk and greater protections afforded by title insurance to insure against errors or missing information that could threaten the home buyer's property ownership rights or a lender's lien position on loan collateral.

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Benefits of Owner's Title Insurance Policy

No Attorney
and No Policy
Attorney with
Title Opinion
Standard Owners
Title Policy
Eagle Owners
Title Policy
Matters Found in Title Search
Matters Predating Title Search
Attorney's Fault Irrelevant
Matters Not found in Public Records Search – Hidden Title Defects
Forged Documents
Incapacity of Grantors
Missing Heirs
Mis-Indexed Documents
Recording Mistakes
Additional EAGLE Coverages
Post-Policy Forgeries
Post-Policy Encroachments
Prior Building Permit Violations
Restrictive Covenant Violations
Post Policy Defects
Certain Zoning Violations*
Enhanced Pedestrian and Vehicular Access

Protect Your Biggest Investment

Most people will purchase a home only a few times in their lives, and many do so only once or twice. So, the value of title insurance is often misunderstood, but it can easily be one of the wisest financial decisions you'll ever make. Below are answers to some of the most frequently asked questions about title insurance.

An opinion does not guarantee protection

Be certain that your investment is protected with a title insurance policy.

Title Insurance Topics

What is title insurance?

Let's start by understanding the term "title." Title refers to the rights you obtain when property is deeded or conveyed to you, which includes your rights to own, use and sell your property. When you buy a home, the deed from your seller conveys the title to you. However, title can also be transferred from one person to another in other ways besides at a sale. For example, title might transfer to a spouse or other heirs automatically upon death or as part of a divorce settlement.

There are two types of title insurance policies – an owner's policy and a lender's policy. An owner's policy of title insurance protects the rights of the homeowner, generally for as long as the homeowner or the homeowner's heirs have an interest in the property. A lender's policy (often called a loan policy) is required by most lending institutions as a way to insure their right to foreclose on a property if the owner fails to repay the mortgage loan. This policy protects the bank or other lending institution for as long as they maintain an interest in the property (typically until your mortgage is paid off).

Both title insurance policies not only pay valid claims and legal fees to defend against covered title issues, but also help to decrease ownership risks. That's because a title insurer will frequently conduct a title search prior to issuing either policy, often correcting errors in the public record before the property is transferred.

Why do I need title insurance?

Your home may be new to you, but every property has a history. And, in some cases, that history may include title issues that, if not identified and addressed, can be used to challenge your property ownership rights. You don't want a problem that occurred long before you bought your property to deprive you of ownership or your right to use or sell it. And you don't want to pay the potentially high cost of defending your property rights in court.

A title search by a title professional can help uncover title defects tied to your property. And, subject to the terms of the policy, your title insurer may provide you with protection from title problems discovered after you close your transaction. Common title issues include errors in public records, unknown liens, illegal deeds, missing heirs, forgeries, unknown easements or an undiscovered will. These and other common title issues are often covered by an owner's policy of title insurance.

What does title insurance cover?

The process of insuring a transaction begins with a title search to discover and address potential title issues. However, some title defects simply cannot be discovered with 100% certainty. The job of title insurance is to provide coverage for losses due to the risk of uncertainty inherent in any chain of title. An owner's policy of title insurance is your best protection against potential defects that can impact or interfere with your rights as the property owner. A loan policy of title insurance also exists to protect your mortgage lender's interest.

For a one-time premium, First American will issue an owner's policy protecting against covered losses. These potential title issues or defects could include a forgery – even one that occurred 50 years ago – or a deed executed under duress, an unknown spouse's interest, an error by a clerk in the county recorder's office, or even a misapplied tax payment, to name a few. There are actually more than 70 ways you could lose your property due to a title issue. Your First American title insurance policy also provides for legal defense costs for as long as you or your heirs own the property unless the matter is excluded or excepted.

Why do I need to purchase another lender's policy of title insurance when I refinance my home loan?

Many people are surprised to learn they are required to purchase a new lender's policy of title insurance when refinancing their mortgage. This is because a lender's policy only provides coverage for the life of a loan. When a home is refinanced, the life of one loan ends and another begins, so a new lender's policy is required. Because an owner's title policy generally provides coverage for as long as you or your heirs hold an interest in the property, there is usually no need to purchase a new owner's policy when refinancing (although you may want to purchase additional coverage to reflect an increase in your home's value, for example).

What is a lien?

A lien is a legal right of a creditor in a piece of property to secure an obligation, usually the payment of a debt. Lien creditors could include mortgage lenders, a government taxing authority, or someone who has obtained a money judgment in a lawsuit against a property owner. If these creditors are not paid, the lien gives them the right to foreclose or force a sale of the property to satisfy the unpaid debt.

What does a title insurer do before issuing a title insurance policy?

When you purchase title insurance, title professionals will conduct a public records search to identify and remedy, if possible, any issues or "clouds," so a policy of title insurance can be issued to protect your right to own or enjoy your property. A title search is typically performed by a title professional, such as an abstractor or attorney, and is a complex process, one that few homeowners recognize at the time they purchase their home.

An in-depth title search is generally comprised of a thorough examination of public records, usually starting at the local courthouse or recorder's office. The title search helps establish a "chain of title," which is the record of everyone that has held title to, or owned, a home or other specific property over time. Each change in ownership from one owner to the next is a separate "link" in the chain, from the past up to the present day.

Establishing a chain of title often requires considerable expertise. The steps required also vary tremendously by jurisdiction. The title professional may need to search several different public offices, look through multiple filing systems, each with its own "index," and compile many different types of records into a coherent narrative of the property's legal history while flagging any potential problems along the way.

How can liens impact your property ownership rights?

Finding liens is an important part of searching title. This can be difficult because, depending on the jurisdiction, liens and judgments on a property may be filed a number of different ways (by the name of the buyer, the name of owner, the street address, lot number, etc.) and in a number of different filing locations.

In addition, in some states certain types of liens may attach to title even before they are publicly recorded. A good example is a mechanic's lien, which in some states can be enforceable even if it did not appear in public records.

These kinds of unknown and other "hidden" liens are a common title issue that impact a homeowner's right to use their property. Prior owners of a property may not have been meticulous bookkeepers—or bill payers. And even though a previous owner's former debt is not your own, banks or other financing companies can place liens on your property for unpaid debts, even after you have closed on the purchase. This is an especially worrisome issue with distressed properties.

How much does title insurance cost?

Because it is a highly regulated industry, title insurance policy types and costs will vary from state to state. In many states, the Department of Insurance can provide more information on pricing regulations. In general, each policy price is based on the purchase amount of the home (for an owner's policy) or the total amount of the loan (for a loan policy). A large piece of the one-time premium paid for an owner's title insurance policy goes to fund the title search and additional legwork required to thoroughly research the property's title. Unlike other types of insurance, the purchase of an owner's title insurance policy is a one-time event; there are no future premiums to pay as long as you or your heirs hold an interest in the property.

Are you required to purchase an owner's policy of title insurance?

Purchasing an owner's policy of title insurance is optional, though it is highly recommended and nearly all home buyers – Nearly 70% of all buyers choose to protect their investment by purchasing an owner's title insurance policy.

Are attorney opinion letters a suitable alternative to title insurance?

Attorney opinion letters carry considerably more risk for a home buyer than a traditional title insurance policy and may wind up costing consumers far more money. For example, attorney opinion letters typically offer no duty to defend. This lack of this protection could be harmful to low- and moderate-income borrowers, for whom attorney opinion letters have been promoted as a cheaper alternative but who are generally the least likely to be able to bear the costs associated with defending title should an issue arise. Paying thousands of dollars in legal fees out of their own pocket to protect their ownership rights could very well be financially devastating or nearly impossible for some homeowners.

Importantly, an attorney opinion letter may not disclose or protect home buyers against problems, like fraudulent deeds, improperly recorded documents, mechanics' liens or HOA liens. And, if a title issue does come up, the property owner may have to prove negligence against the attorney that provided the opinion – which may be difficult and costly to prove especially as the attorney is likely to be defended by a malpractice insurance company's lawyers. Moreover, even if found liable for negligence, the attorney may not have malpractice insurance to cover the loss, or the amount of coverage may be less than the property owner's losses, potentially leaving the owner uncompensated for some or all of their damages. On the other hand, title insurance companies, like First American Title, have substantial monetary reserves to ensure that covered losses can be paid.

On the other hand, a relatively small, one-time investment in title insurance provides the protection from covered title issues for as long as you own your home and the coverage includes the duty to defend, meaning the title insurer will hire lawyers and pay your defense costs should a covered title problem arise.

Real Stories of Protection
from the Unexpected

Title Insurance protects people every day. Because for all the research and documentation involved, real estate transactions are complex. Situations occur that home buyers, as well as real estate and closing professionals, can't foresee. From undisclosed tax liens to forged deeds, erroneous legal descriptions to easement problems, there are numerous situations that can cost an uninsured homeowner time and money.

For more than a century, First American has insured the title to people's homes – insurance that lets homeowners rest assured that they are protected from many of the situations that could affect their homeownership.

Permit Problems

EAGLE Protection helped one homeowner recover from problems he did not foresee.

Just after buying his home, Tim brought in a small construction team to renovate the interior of the house. He expected to make a few adjustments. He didn't expect to get the news the construction team gave him. Minutes after they arrived, they found that the carpet in the den had been laid directly onto plywood, which had been laid directly on dirt. No concrete, no footings, no foundation. They soon found two other areas in the house with similar problems.

So, Tim contacted the city. After inspection, the city determined that the additions had been made to the house without a building permit. They then ordered him to tear out those portions of the house and rebuild them completely – to code and with a permit.

Recalling the decision he made to purchase an EAGLE Policy® when he bought the home, Tim went to his First American representative, and it was quickly determined that the EAGLE Policy's building permit violation coverage applied. Tim was then paid the $25,000 the policy provided for repairs. Knowing that this building permit violation coverage isn't available in standard policies. Tim was glad he made the choice he did.

“When I bought the house, the person at First American explained the benefits of the EAGLE Policy. I thought ‘I'm buying a fairly expensive home here, what's a few extra dollars?’ It was the best investment I ever made.“

“As a developer, I had done a lot of work with First American in the past, so there was no question that I go with them for my title insurance. When this happened, I realized how good a move that was.”

-- Tim, Homeowner

Fences and Neighbors

She came home to find a fence being built down the middle of her driveway.

Annegret, quite happy with the home she'd purchased and its scenic surroundings, decided to take a trip to her homeland of Germany. Upon her return, she found that she had new neighbors next door – neighbors who were building a fence that Annegret saw headed down the middle of her driveway!

The neighbors agreed to have a survey completed, which did reveal that building the fence and the true property line would block Annegret's access to her garage and the rear portion of her property. Unfortunately, the neighbors quickly built the fence anyway.

Annegret's real estate agent, Jim, immediately called First American knowing that Annegret had EAGLE Protection. First American quickly hired an attorney to represent Annegret. The fence came down and the issues in dispute were resolved. First American then filed for a variance from the county to get an established set-back line redrawn and obtained an easement for use of the driveway.

Bottom line–a standard title policy would not have covered Annegret's dilemma. Without First American's title insurance protection, Annegret would have been left to deal with this on her own.

“The EAGLE Policy® protected my client. Ironically, if the neighbor had an EAGLE Policy, they might have been compensated for providing the easement. I'm recommending the EAGLE Policy to all of my clients because of the protection it affords.“

-- Anngret, Homeowner

“As a developer, I had done a lot of work with First American in the past, so there was no question that I go with them for my title insurance. When this happened, I realized how good a move that was.”

-- Jim, Real Estate Agent

The Weight of Unpaid Taxes

The IRS suddenly told a couple that they didn't own their home.

When Ronald and Lorie bought their suburban home, little did they know they would become principals in dispute with the United States government. They bought their home from someone who had acquired it from the Internal Revenue Service at an auction after it had been seized by the IRS in connection with unsatisfied tax liens.

After they moved in, the new owners were shocked to learn that the IRS had rescinded the original sale and returned the first buyer's money. The IRS refused to issue a deed, which meant that the right, title and interest in the property were not transferred to the bidder or, in turn, to Ronald and Lorie. Even worse, tax liens totaling millions of dollars were placed on the house.

Ronald and Lorie contacted First American, and we're told that the owners title insurance policy they had with First American covered their predicament.

So, First American went to bat representing them in court and won more than $45,000 in attorney and settlement fees. The couple retained ownership to their home without spending a dime of their own – thanks to the protection of title insurance.

“We were shocked when the sale was canceled. We had no idea why, and the only thing we were told was that there were liens on the property. So, we called First American. First American took care of the problem quickly and we're really happy about the way things turned out.“

-- Ronald and Lorie, Homeowners

Homeowners and real estate professionals alike are realizing the difference title insurance protection from First American can make and how vital its protection can be.

The EAGLE Protection owners policy was created to benefit homeowners and real estate professionals. It includes coverages that haven't been traditionally offered by title insurers. It features post-policy coverages that haven't been part of the title insurance at all. Its policy amount increases annually as a hedge against inflation. And as seen in the events described here, it provides protection in situations that homeowners, and even their real estate agents, could never predict. Call your local First American representative to see how simple it is to obtain EAGLE Protection and how valuable it can be.

As with any insurance contract, there are exceptions exclusions and conditions to coverage contained in the policy. Some coverages may not be available in your area or for your transaction due to legal, regulatory or underwriting considerations. Please contact your First American representative for further information.